PMI data points to continued recovery in Chinese economy

China’s economy continues to strengthen, with manufacturing activity rising slightly in June, official data showed.

The Purchasing Manager’s Index (PMI) for China’s manufacturing sector firmed to 50.9, up from 50.6 in May, according to the National Bureau of Statistics on Tuesday. 

A reading above 50 indicates expansion while a reading below 50 reflects contraction.

Nomura said in a note that improvement in the June manufacturing PMI was mainly driven by a jump in new export orders, with a related sub-index rising to 42.6, from 35.3 in May.

Zhao Qinghe, a senior NBS statistician, said both exports and imports for China’s manufacturing sector picked up as the world’s major economies started rebooting.

But despite the improvement in trade, he cautioned that indexes for imports and exports are still below the 50-point threshold, and uncertainty remains in foreign markets as the pandemic is still not well contained overseas.

Meanwhile, demand and production warmed up with production and new orders sub-indices picking up to 53.9 and 51.4 respectively.

However, the employment sub-index fell further to 49.1 in June from 49.4 in May, suggesting labor markets face more downward pressure amid slumping external demand and existing social distancing requirements weighing on labor-intensive manufacturing sectors.

Of note, small enterprises remain in a difficult position with the PMI for small enterprises falling to 48.9 in June from 50.8 in May, as they are more vulnerable to the COVID-19 shock and its ripple effects. 

PMIs for large and medium-sized enterprises rose to 52.1 and 50.2, respectively, in June from 51.6 and 48.8 in May.

Meanwhile, the official non-manufacturing business activity index rose further to a stronger-than-expected 54.4 in June from 53.6 in May, mainly led by the service sector, the index of which rose to 53.4 in June from 52.3 in May.